Dividend Champions Face-Off: Should You Buy Vodafone Group plc Or National Grid plc

Vodafone (LSE: VOD) and National Grid (LSE: NG) are two of the market’s dividend champions. 

But if you only have room for one of these two income stocks in your portfolio, which one should you chose?

On one hand, National Grid has a monopoly over the UK energy transmission market. This gives the company a stable, and predictable income stream to support the dividend payout.

On the other hand, Vodafone has a broad international presence, with exposure to markets like Africa and India. However, Vodafone is struggling to compete with an increasing amount of competition and changing consumer habits.

Slow and steady 

National Grid’s business, the transmission of electricity around the UK, is essential, but it’s hardly exciting.

That being said, more often than not ‘boring but essential’ businesses make the best long-term investments. 

And long-term development is the name of the game for National Grid. The company’s management works to a ten-year development plan, which is updated and republished every decade. There aren’t many other companies that take such a long-term approach.  National Grid’s ten-year plan keeps the group’s development on track and allows all of the company’s stakeholders to see what management is working towards. 

Unfortunately, Vodafone is unable to commit to the same kind of long-term outlook. The telecoms industry is changing rapidly, and competition is increasing. Moreover, as customers move away from traditional services, such as text voice messaging, towards free messaging and data packages, margins are coming under pressure.

Gaining traction  

Still, Vodafone’s growth is set to gain traction over the next few years. The company’s hefty infrastructure investments within Europe should start paying off by 2017. Sales growth in emerging markets will also boost the bottom line.  

Over the next three years to 2017, Vodafone’s earnings per share are set to increase by a total of 14%. Over the same period, National Grid’s earnings per share are only set to expand by a total of 7%. 

Nevertheless, when searching for the best dividend stocks it always pays to seek out stability over growth. And when it comes to earnings stability, National Grid is the undisputed champion.

For example, according to City analysts Vodafone’s earnings are set to collapse by 63% this year and fall a further 4% next year before rebounding by 19% during 2017. In comparison, National Grid’s earnings are set to fall by 16% this year but then push steadily higher by 4% during 2016, and 3% in 2017. 

The better yield 

So, National Grid’s slow and steady outlook makes the company the better dividend pick of the two.

At present levels, National Grid’s dividend yield currently stands at 4.7% and the payout is covered one-and-a-half times by earnings per share. The dividend payout is set to rise in line with inflation over the next three years.

Vodafone’s dividend yield currently stands at 4.8%, although the payout isn’t covered by earnings per share. Just like National Grid, Vodafone’s payout is set to rise in line with inflation over the next three years. 

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Rupert Hargreaves has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.